Author Jeff Rubin says peak oil will shrink trade with Asia

A well-known economist and author says the B.C. government is looking in the “rear-view mirror” by spending vast sums of money to become a gateway for more trade with Asia.

In an interview in a downtown Vancouver food court, Jeff Rubin, a former chief economist with CIBC World Markets, told the Georgia Straight that in the coming years, “triple-digit” oil prices will make it far more expensive to ship goods here from Asia.

“Trade is going to become more and more regional than transoceanic,” he predicted.

Rubin’s new book, Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization (Random House Canada, $29.95), describes in detail the impact of oil prices on shipping costs. For example, he notes, when oil prices rose from US$30 per barrel to US$100 per barrel, the average daily fuel bill of a cargo ship went from US$9,500 to US$32,000.

“As oil climbed to [US]$100 per barrel, fuel costs became almost half the total cost of shipping something by sea,” Rubin writes.

As the Straight went to press, oil was selling at US$71 per barrel. It has swung from a high of US$147 to a low of US$33.87 over the past year.

Rubin said he became interested in the theory of peak oil several years ago when he met petroleum geologist Colin Campbell, who cowrote a landmark article on oil supplies in Scientific American in 1998. Campbell suggested that major oil producers such as Iran, Saudi Arabia, Iraq, and the United Arab Emirates inflated their “proven reserves” even though they hadn’t made any significant new discoveries.

Campbell also predicted that oil prices would rise sharply in the early part of the 21st century because demand would outstrip supply. “He had a huge influence on me,” Rubin said. “The traditional way of looking at this from an economist’s standpoint is every scarcity is self-correcting because higher energy prices will bring forth new supplies.” He noted, however, that this isn’t the case if the supply doesn’t exist.

Rubin’s book chronicles depletion of global oil reserves at the same time as demand has increased sharply in oil-producing countries. He notes that Russia has helped fill a growing gap in supply in recent years but claims that its production has peaked.

“If we can’t grow world production above 86 million barrels a day, we may not be able to grow world GDP [gross domestic product],” Rubin said. “The single most important thing to prevent peak oil from becoming peak GDP is to go back to local economies.”

That’s because producing goods locally will reduce shipping costs. But the B.C. government’s Gateway Program is based on the belief that trade with Asia will continue to expand. It includes a new Port Mann Bridge, widening Highway 1 from Vancouver to Langley, a new four-lane South Fraser Perimeter Road, and the North Fraser Perimeter Road project.

According to a Metro Vancouver report, the B.C. Ministry of Transportation and Infrastructure has secured 110 hectares of agricultural land for the South Fraser Perimeter Road and the Golden Ears Bridge projects.

Rubin, however, said that there will be greater demand for farmland because soaring fuel costs will make food from China far more expensive. “Don’t expect the politicians to get it before you get it,” he said. “Triple-digit oil prices will be a wake-up call to people who are otherwise deaf.”

Comments

20 Comments

seth

Jun 11, 2009 at 10:11am

Peak oil is in reality a myth as we can easily make oil from coal and oil shale. Of course that would ignore CO2.

Of course, the one thing that would put paid to peak oil once and for all is a massive nuclear attack - a World War 2 type effort mass producing thousands of publicly owned mostly factory built Generation 3.5 reactors all at once at a billion a pop. Within ten years we can be off fossil fuels.seth

StephenH

Jun 11, 2009 at 1:47pm

This article is very true. We should go back to assembling goods in the city in which they are going to be used, and if needed to to transport them via either rail or waterway only short distances from there (such as only one city away, etc). If we assembled locally, not only will this reduce oil demand worldwide, but also will solve our trade deficit at the same time. If it were me, to mitigate this faster, I would impose a tax on importing goods that is far higher than the US cost of labor for assembling that item, and make major tax breaks for those who assemble goods and parts in the city they are to be sold in (for example, make all goods to be sold in San Diego be assembled in San Diego). I also would give tax breaks to build goods using parts produced close to home, too.

Nimby7

From Shanghai to Vancouver is about 6000 miles, so it takes about 6 gallons of fuel to move a ton that distance. By truck on land, that same 6 gallons will only move a ton about 543 miles. In addition, the labor costs of trucking are huge compared to shipping, because each truck needs a driver, while a gigantic ship only needs a skeleton crew.

Conclusion: High oil prices will destroy trade between Alberta and Vancouver before it destroys trade between Shanghai and Vancouver.

The relevant metric is not the percentage of fuel costs relative to total transport costs mentioned by Rubin. That ratio is high for shipping precisely because shipping has such low labor costs per ton.

The relevant metric is the comparative values of net ton-miles/gallon of different transport modes.

The reality is that it costs less to ship a container between China and Felixstowe than it does to then send it on the road to Scotland.

Ocean-based grain and resource trade dates back to the Roman Empire, long before fossil fuels.

scrower

Jun 11, 2009 at 7:23pm

Film bio: 91”¢86”¢90. What do these numbers mean? Why do they affect you? Why should you care? Steve Crower, an energy investment banker from Denver, CO, finds a creative way to present the underlying data of the world's petroleum supplies and why we should pay attention to it...

RICHARD RALPH ROEHL

Jun 11, 2009 at 8:53pm

The No. 1 problem, a problem that overshadows all other problems presently facing humankind (a.k.a.: ewe-man-unkind), is the DOCTRINE OF PERPETUAL GROWTH of the human population and the global consumer economy on Planet-Over-Birth-Earth... an extremely fragile HOST ORGANISM... of FINITE space and FINITE resources.

Perpetual growth in a closed looped system (the Earth) in NOT progress. It is cancer! Full blown cancer! Old Coyote Knose... that humans are clever baboonies, but they are not wise or prescient. They suffer the Achilles heel of tribe-all-eeego arrogance and out dated religious dogmas (a.k.a.: dog-mess). These attributes are rooted in fear in lieu of love. And this is why the Garden of Seed-in the hole (the Earth)is becoming hell!

Ol' Coyote shall leave ewe folks with the following two caveats. And the Knose knows time runs short for ewe! Indeed! Almost seven billion human consumers on the planet today. Wake up fools... or tomorrow the Earth will be a charnal house of unspeakable horror. Deny-all of peak oil, climate change, etc... will not save your sorry asses. These things are happening because of the insane DOCTRINE OF PERPETUAL GROWTH... the cancer.

romeogolf

Jun 12, 2009 at 10:46am

Nimby7, with respect to Alberta-BC trade, you're forgetting rail.

Also, while you are correct in pointing out that shipping by sea is much cheaper than truck, that doesn't mean the rise in fuel costs will be negligible. Goods with low margins, like clothing and consumer products, will not be economic to manufacture across the ocean from where they are sold.

Of course there has been ocean-based trade for millennia, long before the Roman Empire. However, relying on wind power curtails your shipping capability. Transshipment times increase, meaning costs do too.

The other thing to factor in is that not only are we facing peak oil but other resources as well. We may have a certain ocean-going shipping capability, but will there be anything close to the amount of goods available to ship than what we have seen in the past thirty years?

derek k

Jun 12, 2009 at 2:32pm

nimby7,

the logic works as long as vancouver is the final destination for all those chinese goods. in the more likely event that it is not, whatever shipping expenses apply to bc goods going to alberta (or where ever else) also apply to chinese goods arriving in bc, after having the cost of sea-transport tacked on. unless the final market is a port, sea shipping is not an alternative to ground shipping, it is in addition to it.

nimby7

Jun 12, 2009 at 6:25pm

romeogolf, What rail? Canadian rail is unreliable, lacking capacity, and already maxed out carrying products like coal and potash etc.

If it will be uneconomic to manufacture goods with low margins, like clothing and consumer products, across the oceans, it will be even more uneconomic to manufacture them within Canada, for exactly the same reason. Moving the products from, say, Vancouver to Alberta or Saskatchewan will take as much fuel (or far more) than moving the same products from China. In addition, you have the problem of high labor costs of trucking and manufacturing in Canada.

The bottom line is that people in deep rural areas like Saskatchewan are going to get absolutely mauled by price inflation. This will be due to: a) the high expense of moving goods to them, and b) the highly dispersed layout of rural communities, where you have to drive 20 miles to the supermarket etc. If you're driving more than 3 miles to the supermarket, that drive itself consumes as much fuel per item as transporting the same items halfway around the world.

Port cities along the pacific rim will continue to thrive, as they always have, due to the ease of trade. Vancouver will find itself linked more closely to Asia, Australia and California than the inner Canadian provinces.

Your comment about wind is a red herring. Peak oil is about somewhat more expensive fuel, not a complete and immediate loss of all forms of fuel. There are still very large remaining reservoirs of oil, gas, coal, heavy oil, tar sands, uranium etc. Fuel driven shipping is going to be with us for a long time yet.

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